Interior Minister Aryeh Deri on Sunday signed an order allowing Israelis to travel to Saudi Arabia.
The decision was made in coordination with the security services, the foreign ministry, and the head of national security.
Traveling to the Arab country will only be allowed on the grounds of religious worship during the Hajj as well as business trips that would last no longer than nine days if the applicant already made arrangements for the visit with Saudi officials.
The announcement is the latest sign of quiet but warming relations between Israel and Saudi Arabia. It also came days before the White House is to announce its Mideast peace plan - which is expected to seek Saudi support.
Israel and Saudi Arabia do not have formal diplomatic relations, but the two sides have found common ground in their shared animosity toward Iran.
Prime Minister Benjamin Netanyahu frequently boasts of back-channel relations with Arab countries that do not have formal ties with the Jewish state. Israel has peace deals with only two Arab countries - Egypt and Jordan.
Under Sunday's announcement, Israeli Muslims can go to Saudi Arabia for religious pilgrimages. In the past, such visits required special permission from the government, the ministry said.
The announcement also confirmed that for the first time ever, Jewish Israelis will also be permitted to go to Saudi Arabia on business trips. While some Israelis are believed to already visit Saudi Arabia, this requires either a foreign passport or special permission.
In its announcement, the interior ministry said Israeli visitors would require an official invitation to enter the kingdom. It said the decision had been coordinated with Israeli security officials and other "relevant" bodies, including the foreign ministry.
There was no immediate comment from Saudi Arabia. The kingdom has made small gestures toward Israel in the past. In 2018, it began allowing Air India to fly through its airspace on its Israel route, cutting several hours off the trip.
Saudi support for the new U.S. peace plan would give significant momentum to the initiative. It remains unclear, however, whether the Saudis will do so, given the staunch opposition to the plan by the Palestinians.